Loss of Health Plan Eligibility Caused by Move to Part-Time Work
By Brian Gilmore | Published July 26, 2019
Question: When does an employee lose health plan eligibility upon a change in employment status to part-time work?
Compliance Team Response:
Reminder: Very Different Approach Depending on Measurement Method
There are two different approaches for an applicable large employer (ALE) subject to the ACA employer mandate pay or play rules to determine employees’ full-time status:
The monthly measurement method; or
The look-back measurement method.
In general, employers with primarily full-time eligible workforces are best suited for the monthly measurement method. Employers with employees whose hours fluctuate above and below 30 hours of service per week will generally rely on the look-back measurement method because it provides greater predictability and stability for those workforces.
The measurement, administrative, and stability periods are relevant only to the look-back measurement method. They do not apply to the monthly measurement method.
The Look-Back Measurement Method
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Look-Back Measurement Method: Standard Measurement Period Rules for Ongoing Employees
Ongoing employees are those employees who have completed at least one full standard measurement period. Such ongoing employees are in a stability period (generally tracking the plan year) which keeps their status as full-time or part-time “stable” for the duration of the stability period (absent a termination of employment).
An ongoing employee’s status as full-time or part-time for the current stability period is based on whether the employee averaged at 30 hours of service during the associated standard measurement period that occurred prior to the start of the current stability period. The ACA employer mandate rules use 130 hours of service per calendar month as the monthly equivalent of at least 30 hours of service per week. Therefore, under the typical 12-month standard measurement period, an ongoing employee generally must complete at least 1,560 (130 x 12) hours of service in the previous standard measurement period to be full-time for the current stability period.
Key Point #1: An employee who is in a stability period as full-time and experiences a change in employment status to working part-time hours will nonetheless remain full-time for ACA purposes the duration of the current stability period. The employee’s full-time status is kept “stable” for the entire stability period regardless of how many hours per week the employee is currently working.
In other words, the change to part-time work hours has no effect from an ACA perspective for the remainder of the current stability period—because the stability period status is based exclusively on the employee’s hours of service during the previous standard measurement period (that ended prior to the current stability period). This means that the employer cannot drop the employee from coverage upon the change in employment status without creating potential ACA employer mandate liability.
At the end of the standard measurement period in which the change occurs, the employer will review all ongoing employees’ hours of service to determine whether they averaged at least 30 hours of service over the entire measurement period (i.e., generally at least 1,560 hours of service over a full 12-month standard measurement period). Even though certain employees may have decreased to part-time hours at some point during the year, the total average over the full measurement period may still result in full-time status again for the next plan year (stability period). This will generally depend on how many hours of service were completed prior to the change in work hours, and how late in the standard measurement period the change in hours occurred.
Employees who average at least 30 hours of service over the full standard measurement period (i.e., generally reach 1,560 hours of service in the 12-month standard measurement period) will need to be offered coverage at open enrollment (the administrative period) for the entire next stability period (generally the plan year) to avoid potential pay or play penalties. This is still the case even if the employee is currently working part-time hours.
Key Point #2: Employees who do not average at least 30 hours of service over the full standard measurement period (i.e., generally do not reach 1,560 hours of service in the typical 12-month standard measurement period) can be removed from coverage as of the start of the new stability period (generally the start of the new plan year) because the employee will be treated as part-time for ACA purposes for the duration of that stability period. This will be a COBRA qualifying event as of the end of the plan year in which the employee loses coverage (loss of coverage caused by a reduction in hours).
Look-Back Measurement Method: Gap Period Rules for New Full-Time Hires
New full-time hires are employees who are offered coverage upon hire (no later than the first day of the fourth full calendar month of employment to avoid potential ACA employer mandate penalties) and have not yet completed a full standard measurement period and administrative period. These new full-time hires therefore are not yet in a stability period. Instead they are in what is generally referred to as a “gap period” prior to reaching a stability period.
During this “gap period,” the employer can determine full-time status on a month-to-month basis, and remove the employee from coverage at any point in which the employee fails to work full-time for a calendar month (i.e., does not complete at least 130 hours of service in the calendar month).
So there is no barrier to the employer removing the new full-time employees from coverage who drop to part-time work prior to reaching a stability period. The employer will just want to take a consistent approach in if and when they remove employees who drop to part-time hours during this gap period for new full-time hires.
For full details on this gap period issue, see our previous post: ACA Status for New Full-Time Hires in the Gap Period
Dental, Vision, and other Non-Medical Coverage: ACA Rules Do Not Apply
The ACA employer mandate pay or play rules apply to medical coverage only. They do not apply to dental, vision, or other coverage. Therefore, the employer does not have to apply the same look-back measurement method rules for determining an employee’s full-time status for dental and vision coverage eligibility.
Employers that do not rely on the look-back measurement method for dental, vision, or other non-medical benefits could therefore rely on regularly scheduled hours to remove the employee from coverage upon the change to working at part-time hours (i.e., not waiting until a stability period in which the employee reaches part-time status as with medical coverage). Keep in mind that dental, vision, and any other health benefit lost would be a COBRA qualifying event caused by the reduction in hours.
Many employers feel that it’s administratively simpler to have one uniform determination of an employee’s full-time status for all health and welfare benefits. That optional approach would result in the employer applying the same look-back measurement method full-time status determination described above to determine eligibility for all H&W plans.
The Monthly Measurement Method
The measurement, administrative, and stability periods are relevant only to the look-back measurement method. They do not apply to the monthly measurement method.
Under the monthly measurement method, an employee’s status as full-time is determined monthly based on whether the employee reached 130 hours or service in the calendar month.
The ACA defines full-time as averaging 30+ hours per week, but the rules use 130+ hours of service in a calendar month to determine full-time status on a monthly basis.
As soon as the employer determines that an employee has not completed 130 hours of service in a month, they can remove that employee from coverage based on the reduction in hours (a COBRA qualifying event). Any consistent approach for how to handle this situation administratively is fine.
Keep in mind that they do face potential penalties if the employee subsequently works 130+ hours of service in a future calendar month and is not offered coverage for that month.
More Information Regarding ACA Employer Mandate Full-Time Status Issues
Regulations
Treas. Reg. §54.4980H-1(a)(21)(ii):
(21) Full-time employee.
(i) In general. The term full-time employee means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer. For rules on the determination of whether an employee is a full-time employee, including a description of the look-back measurement method and the monthly measurement method, see § 54.4980H-3. The look-back measurement method for identifying full-time employees is available only for purposes of determining and computing liability under section 4980H and not for the purpose of determining status as an applicable large employer under §54.4980H-2.
(ii) Monthly equivalency. Except as otherwise provided in paragraph (a)(21)(iii) of this section, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, and this 130 hours of service monthly equivalency applies for both the look-back measurement method and the monthly measurement method for determining full-time employee status.
Treas. Reg. §54.4980H-3(d)(1)(vii):
(vii) Change in employment status. Except as provided in paragraph (f)(2) of this section, if an ongoing employee experiences a change in employment status before the end of a stability period, the change will not affect the application of the classification of the employee as a full-time employee (or not a full-time employee) for the remaining portion of the stability period. For example, if an ongoing employee in a certain position of employment is not treated as a full-time employee during a stability period because the employee’s hours of service during the prior measurement period were insufficient for full-time-employee treatment, and the employee experiences a change in employment status that involves an increased level of hours of service, the treatment of the employee as a non-full-time employee during the remainder of the stability period is unaffected. Similarly, if an ongoing employee in a certain position of employment is treated as a full-time employee during a stability period because the employee’s hours of service during the prior measurement period were sufficient for full-time-employee treatment, and the employee experiences a change in employment status that involves a lower level of hours of service, the treatment of the employee as a full-time employee during the remainder of the stability period is unaffected.
Treas. Reg. §54.4980H-3(d)(2)(i):
(2) New non-variable hour, new non-seasonal and new non-part-time employees.
(i) In general. For a new employee who is reasonably expected at the employee’s start date to be a full-time employee (and is not a seasonal employee), an applicable large employer member determines such employee’s status as a full-time employee based on the employee’s hours of service for each calendar month. If the employee’s hours of service for the calendar month equal or exceed an average of 30 hours of service per week, the employee is a full-time employee for that calendar month. Once a new employee who is reasonably expected at the employee’s start date to be a full-time employee (and is not a seasonal employee) becomes an ongoing employee, the rules set forth in paragraph (d)(1) of this section apply for determining full-time employee status.
Newfront ACA Employer Mandate Pay or Play and ACA Reporting Guide
Employer Mandate Pay or Play Look-Back Measurement Method
New Hires Look-Back Measurement Method
Employer Mandate Pay or Play Monthly Measurement Method
Brian Gilmore
Lead Benefits Counsel, VP, Newfront
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.
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